North Carolina make 'historic' cuts to unemployment

Jake Grovum of Stateline.org

Monday, July 15, 2013

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WASHINGTON — North Carolina drew national attention this month when it dramatically scaled back its unemployment insurance program, ending benefits for tens of thousands and slashing the amount of time that jobless people can collect aid.

But the North Carolina reductions, which drew fierce protests in Raleigh, were just the latest in a string of unprecedented and historic state cuts in unemployment aid. Even as the nation’s unemployment rate remains stubbornly high, other states have cut unemployment benefits to levels not seen since the 1935 Social Security Act created the program.

Since it became the standard decades ago, no state has offered fewer than 26 weeks of benefits — until recently. Georgia’s benefits now run out after 18 weeks, and five other states have set limits of either 19 or 20 weeks. Of the 11.8 million unemployed Americans, 4.3 million have been without work for 27 weeks or longer, according to the most recent federal data.

As the reductions cut more deeply, safety-net advocates worry that state unemployment insurance won’t be sufficient to support jobless workers when the next recession comes.

“These are historic and disturbing cuts,” said Mike Leachman of the left-leaning Center on Budget and Policy Priorities. “When the next recession hits, the unemployment system of the country is going to be significantly less effective. And it means the next recession will be deeper than it otherwise would have been.”

Maurice Emsellem of the National Employment Law Project pointed out that unemployment insurance puts money into the hands of people who are sure to spend it, pumping more money into the economy. “One of the core functions of unemployment benefits is to help support a strong recovery,” Emsellem said. “(Cutting so deeply) undermines the recovery.”

Leading up to the recession, many states cut the employment taxes that support the trust funds, leaving them ill-equipped to deal with the growth in joblessness that followed. Many states borrowed money from the federal government to cover the resulting shortfalls. To pay back that money, many of them have raised taxes on employers, trimmed benefits for recipients, or both.

When North Carolina Gov. Pat McCrory signed the measure cutting unemployment benefits, he noted that the state owed the federal government $2.5 billion for a loan it took out to keep its program solvent. The cuts took effect two weeks ago.

The reductions have prompted protests, but they have helped states pay down their debts. In 2011, Florida tied its time limit to its unemployment rate, among other changes. It paid off its $3.5 billion debt in May. Colorado Democrats raised taxes on employers to shore up their state’s fund, once saddled with $500 million in debt.

GOP-controlled Michigan raised taxes on employers and lowered its time limit to 20 weeks.

“Previous administrations had not kept up with payments on our unemployment insurance debt,” said Ari Adler, a spokesperson for Michigan House Speaker Jase Bolger, a Republican. Since making its changes in early 2012, Michigan has paid off $300 million of its debt, but still owes $2.6 billion.

Overall, states still owe Washington more than $21 billion for loans they took out to replenish their funds, according to the most recent federal data. California owes the most, at $8.6 billion. Indiana, New York, Ohio and North Carolina all owe more than $1 billion. Others have sold bonds to pay off debt, and that borrowing isn’t represented in the federal data.

Many are skeptical that states’ efforts will be enough. Much depends on the recovery and how much time passes before the next downturn strains resources again.

For now, emergency federal benefits have mitigated the state cuts. During the depths of the recession, Congress approved federally funded aid for unemployed people who exhausted their state benefits.

But as a state’s jobless rate goes down, the federal government gives its unemployed residents fewer weeks of benefits. In states with the lowest rates, the federal government provides just 14 weeks of additional coverage.

In Georgia, a person applying today would get 18 weeks of state benefits plus 25 weeks of federal benefits. In Michigan, the federal government will cover an additional 28 weeks. The current maximum, for states with an unemployment rate of at least 9 percent, is 47 weeks of federal help.

Also, weekly payments under the federal program have been pared by about 15 percent due to sequestration The federal program will expire at the end of the year unless Congress renews it, and many say that will be a challenge.

North Carolina has opted out of the federal program entirely — the first state to do so. The move ended benefits for more than 80,000, by some estimates, and also made the state Exhibit A for those who oppose cuts in unemployment benefits.